Change may not be painless, but is necessary

When I took over as Matanuska Electric Association’s general manager in mid-2009, I inherited a long list of problems left behind by the previous administration. One of those problems was the off-peak thermal storage program. This wasn’t MEA’s biggest problem by any means, but it was certainly near and dear to the hearts of a few and needed to be dealt with in a fair and equitable manner.

The off-peak thermal storage program can best be described as an experiment that never quite worked out. In the final analysis, it has resulted in 50 MEA customers receiving a substantial subsidy in their electric bills every month of the year. This subsidy is being paid by MEA’s other 56,000 customers who pay their full share of the cost of doing business every month, plus a little extra to cover the costs of the thermal storage customers.

This is an important issue to those few folks who stand to lose their subsidy, and they deserve to be treated sensitively. So let’s look at some facts, all of which have been made readily available to the Regulatory Commission of Alaska, the members who have had the benefit of the service and the media.

Fact: The thermal storage customers currently pay 5.465 cents per kWh, not the 2.321 cents reported in last week’s paper. MEA’s tariff sheet 97.6 clearly says that in addition to the basic cost of 2.321 cents, thermal storage customers also pay the same wholesale power cost rate adjustment surcharge everyone else pays (presently, 3.144 cents per kWh).

Fact: MEA’s overall cost of power from Chugach is currently running 7.619 cents per kWh. There is no separate 5-cent rate from Chugach for “off-peak power”. That information is found on sheet 92.2 of MEA’s tariff. Yes, there is a theoretical argument to be made that the true cost of purchases from Chugach during “off-peak” hours should be less than the overall average cost. Unfortunately, the Chugach rate schedule doesn’t give MEA any pricing breaks for “off-peak” purchases. In fact, years ago Chugach told MEA that if it pursues any form of “peak shaving” program, Chugach will simply revise its pricing structure to make sure it still collects the same amount of revenue from MEA. This killed any economic incentive for MEA to promote an “off-peak” program. I remain puzzled why the utility placed the plan in force in view of this known disincentive.

Fact: The thermal storage program is an expensive nightmare to administer. I don’t want the electric utility making periodic inspection tours of the inside of my home. I doubt other members want it either. And yet, this is exactly what MEA must do to ensure the thermal storage customers are only using their subsidized electricity for approved heating equipment.

Last year, MEA hired an independent contractor to perform a sample inspection/audit on several thermal storage customers. The auditors found customers with heating systems that didn’t meet the requirements of the program and some who did not even qualify to receive the subsidized rate. They found a system that wasn’t shutting off when it should, making discounted power available 24 hours a day. They also found cut meter seals, the reasons for which we’ll never know.

Now, I’m not suggesting that any of the folks on the thermal storage rate are cheating the system, but the simple fact is that the annual cost to MEA of properly monitoring the program would be about $80,000. The numbers are right there on Exhibit 1 of MEA’s filing to the regulatory commission. This additional $80,000 in annual costs for the thermal storage program more than wipes out the difference between the subsidized rates and MEA’s full rates for electricity.

Fact: The difference between the annual revenue contributed by all 50 thermal storage customers and what they would pay at MEA’s full rates is roughly $50,000 per year, or $1,000 per thermal storage customer. Who wouldn’t like to receive a subsidy of $1,000 per year? I sure would. But MEA is a cooperative, and the money has to come from somewhere. In this case, it is coming from each and every one of MEA’s other customers.

Fact: The thermal storage customers have been on notice since May 23, 2006, that the program might end. That is when the state regulatory commission approved a new tariff sheet, number 97.6.2, clarifying that the thermal storage program could change at any time, or even be terminated altogether. MEA sent everyone new contracts at that time.

So what is to be done? MEA’s proposal is a simple one: end the program by phasing out the rate subsidy over a 12-month period. If approved by the regulatory commission, the thermal storage rates will be increased gradually until, a year from now, they are the same as what everyone else is paying. At that point, the subsidy will be eliminated and these customers will once again be paying their full and fair share of MEA’s costs.

MEA did not come to this proposal lightly, and I am sympathetic to the desire of these 50 customers to keep a good thing going. The simple fact is, however, that as MEA’s general manager I could not in good conscience continue to impose a subsidy on the majority of MEA’s customers for the benefit of a few. Doing so flies in that face of what a nonprofit cooperative is all about.

Could we have done a better job of getting the word out? Certainly. We sent every one of the thermal storage customers a full copy of MEA’s proposal when it was filed with the regulatory commission, but we didn’t pick up the phone and call them. Looking back, I wish we had because doing so might have kept this from becoming the subject of so much rhetoric.

At the request of MEA’s board of directors, we have scheduled a public meeting to discuss the thermal storage program on Thursday at 6:30 p.m. in the MEA boardroom in Palmer. We have also contacted the regulatory commission to request it extend the deadline for acting on this proposal until May 4. This additional time will allow the board a chance to take a look at MEA’s position, give everyone concerned a chance to voice their opinions and allow the regulatory commission a little extra time to make the best decision possible.

Change is seldom painless, but at the conclusion of this process I hope we will have cleaned up just one more of the many problems that were left behind by MEA’s previous administration.

Joe Griffith is general manager for Matanuska Electric Association.